Question

For each of the following situations, use the IS-LM-FX model to illustrate the effects of the shock. Please explain how you obtained your answer (do not just state the effect). For each case, state the effect of the shock on the following variables (increase, decrease, no change, or ambiguous): Y, i, E, C, I and TB. Assume the government allows the exchange rate to float and makes no policy response.

1. The money supply increases.

2. Government spending increases.

3. Foreign output decreases

In situations 2 and 3, how can the Central Bank use monetary policy (under a float exchange rate) to stabilize output?

Answer #1

For each of the following situations, use the IS-LM-FX model to
illustrate the effects of the shock. Please explain how you
obtained your answer (do not just state the effect). For each case,
state the effect of the shock on the following variables (increase,
decrease, no change, or ambiguous): Y, i, E, C, I and TB. Assume
the government allows the exchange rate to float and makes no
policy response.
1. The money supply increases.
2. Government spending increases.
3....

For each of the following situations, use the IS-LM-FX model to
illustrate the effects of the shock. For each case, state the
effect of the shock on the following variables (increase, decrease,
no change, or ambiguous): Y, i, E, C, I,TB. assuming the government
responds to maintain a fixed ex-change rate.
A. Foreign income decreases.
B. Investors expect a depreciation of the home currency.
C. Private consumption increases exogenously..
D. The money demand increases.

4.
a. Use the IS-LM-PC model to illustrate an economy experiencing
zero lower bound and operating below the natural rate of
output.
b. Explain and illustrate why expansionary monetary policy may
not help to raise the output level to the natural rate.
c. Offer two alternative policies that would work to reduce
unemployment under these circumstances. Explain and illustrate your
answers.

Use the IS-LM-FE model to determine the effects of each of the
following on the general equilibrium values of the real wage,
employment, output, the real interest rate, consumption,
investment, and the price level.
C. An influx of working age immigrants increases labor supply
(ignore any other possible effects of the increased population
( my question is this, why should price level decrease? it says
that for LM curve to shift down, price level should fall. but I
wonder what...

3. The IS-LM Model
Consider an economy characterized by the following equations for
consumption (C), investment (I), government spending (G), taxes
(T), aggregate demand (Z), output (Y), and the interest rate
(i):
C = 54 + 0.3*(Y – T)
I = 16 + 0.1*Y – 300*i
G = 35
T = 30
Z = C + I + G
i = ?
Suppose the central bank has set the interest rate equal to 2%
(this is, ? = 0.02).
a)...

3. The IS-LM Model
Consider an economy characterized by the following equations for
consumption (C), investment (I), government spending (G), taxes
(T), aggregate demand (Z), output (Y), and the interest rate
(i):
C = 54 + 0.3*(Y – T)
I = 16 + 0.1*Y – 300*i
G = 35
T = 30
Z = C + I + G
i = ?
Suppose the central bank has set the interest rate equal to 2%
(this is, ? = 0.02).
a)...

Use the IS-LM model to determine the effects of each of the
following on the general equilibrium values of the real wage,
employment, output, the real interest rate, consumption,
investment, and the price level.
a. There’s increased volatility in the prices of both stocks and
bonds
b. Fiscal policy decisionmakers send out stimulus checks to most
(or all) American households

Use the IS-LM model to answer this question and assume that the
central bank controls the
interest rate. Suppose there is a simultaneous decrease in taxes
and decrease in interest rate.
a. Explain what effect this particular policy mix will have on
output and the money supply.
b. Based on your analysis, do we know with certainty what effect
this policy mix will have on
investment? Explain

Use the IS-LM model to show what happens to output and the
interest rate in equilibrium. Briefly explain how equilibrium is
adjusting in the goods and/or money markets. One IS-LM graph is
necessary for each part. Clearly label your graph for full
credit.
(a) The central bank increases the money supply
(b) The government increases transfers to households
(c) The stock markets are booming and household wealth
increases

Use the IS-LM model to graphically illustrate the impact of a
sudden decrease in demand for money (due to an increase in the use
of internet banking) on the output and interest rate in an economy
in the short run. Write down the impact on Y, C, U and
I.
Be sure to label: i. the axes; ii. the curves; iii. the initial
equilibrium levels; iv. the direction the curves shift; and v. the
new short-run equilibrium.

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 13 minutes ago

asked 31 minutes ago

asked 35 minutes ago

asked 48 minutes ago

asked 56 minutes ago

asked 59 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago